Crypto dip – should you buy or should you refrain from investing?

What is a market dip?

Market dips can happen in any sector, but let's resume the discussion of digital assets. In the crypto world, dips are characterized by abrupt declines in the price of cryptocurrencies over the short term. When this happens, the prices don't experience a minor blip, but they go through a significant drop that shatters the equilibrium of the entire market. Seasoned investors see market dips as ideal opportunities to purchase assets with potential at lower prices so they can make a profit when the market bounces back.

However, it's not guaranteed that the prices will rebound, they can even crash lower or the project could disappear entirely from the market. A series of factors could cause market dips, and it's essential to be aware of them if you want to take advantage of the phenomena.

External events can trigger trend changes in the crypto market, which could cause asset prices to dip. These events could include drastic changes in traditional financial markets, geopolitical events, or macroeconomic factors that could impact a category of digital assets or more.

Market sentiment refers to the audience's sentiment towards the crypto sector, which plays a great role in the way the market performs. Bear markets are characterized by negative sentiments, which stem from regulatory concerns, bad news, or unsatisfactory market trends.

Profit-taking is another significant factor that could trigger market dips because it marks a period when investors sell their cryptocurrencies to make a return.

What happens in the market when prices dip?

After identifying the factors that could lead to price dips, it's also useful to know how the market behaves during these periods.

- Market dips are usually characterized by volume changes because investors start selling their assets, afraid that their portfolios will suffer significant losses. On the other hand, investors who are willing to take risks purchase cryptocurrencies in anticipation of a market rebound. Therefore, trading volumes tend to increase during dips.

- These are turbulent moments, so the market is exposed to an increased sense of uncertainty. Investors cannot predict the market's movements and find it challenging to decide what direction to follow. When the market is exposed to a sense of uncertainty, it's also characterized by erratic price movements and increased volatility.

- As expected, a market dip will cause a price decline for most assets. Price drops are drastic and rapid and impact assets from most categories.

Understanding what happens in the market during a dip is crucial because it offers investors knowledge they can use to navigate the sector and take advantage of changes.

Should you buy during a dip?

Market dips come with their associated ups and downs, and you should be aware of the risks to which you expose your portfolio. However, if you have gained knowledge of how they work and think you developed a strategy that will benefit you, then you can take advantage of this opportunity. Note that these periods are ideal for purchasing blockchain-based assets at discount prices, which could lead to a great return in the future when and if the market bounces back.

A popular strategy investors use during dip periods is Dollar-Cost-Averaging, which requires investing a fixed amount of money at established periods, ignoring the price of the asset. When using this strategy, investors purchase more of an asset when its price dips, creating robust portfolios.

An analytical approach and market sentiment play paramount roles in the process because they can guide you to make an informed decision. The market sentiment helps you understand the attitude of the market and indicates its evolution. Fundamental and technical analysis on the other hand implies overviewing several indicators that help you predict market movements.